2022 April 04

On 4 April 2022, the Environmental Audit Committee published our Report “Greening imports, a UK carbon border approach”. Our Report recommends that the Government develop a Carbon Border Adjustment Mechanism within this decade to prevent efforts to decarbonise the UK being circumvented by companies moving their operations to countries with weak climate legislation. The summary of Recommendations of the Report are as follows: “An effective carbon price is a crucial lever to combat climate change, and requires an effective anti-carbon leakage approach to enable this; the Government’s current approach, principally the allocation of free emissions trading scheme (ETS) allowances, is insufficient to drive effective decarbonisation. The current situation also means that the UK applies a carbon price to domestic production but not to imports, which make up 43% of the UK’s consumption emissions. A policy response in the form of a UK carbon border approach is needed. This should include a carbon border adjustment mechanism (CBAM) to ensure an equivalent carbon price is applied to imports as is applied to domestic production, as part of a co-ordinated set of policies, including product standards. We recommend that the Government commence work on this UK carbon border approach immediately, to enable its implementation during the 2020s. The EU is currently developing plans for a CBAM, which it intends to have in place by 2023; it is important that the Government articulate how it intends to work with stakeholders on, and communicate progress towards, the actions it is taking to ensure no adverse impacts to the UK. While multilateral solutions remain the most effective way to address carbon leakage, the process to agree these is lengthy, so unilateral action is essential in the short-term.